What Makes an NFT Valuable? An Interview with Elena Obukhova

What makes an NFT valuable?

First of all, if we talk about the value of NFT's, I would approach it from 2 sides: financial and technological. NFTs can be financially valuable due to the rarity, authenticity, and origin of their underlying assets/products/contracts.

For example, it can be digital art that was created by a famous artist, a soundtrack recorded by a celebrity, or it can be a piece of luxury real estate. There are multiple reasons why businesses and famous artists are choosing NFT technology including provenance, transparency, and liquidity. Digital art existed before NFTs. Music was recorded, royalties were done through "paper" agreements, and real estate was also sold without using blockchain technology.

NFT technology isn't re-inventing these industries. It makes them efficient through better transactions, more transparency, and the prevention of counterfeiting.

Are NFTs the future of art and collectibles?

They definitely are the present. I always like to look at NFTs from a wider angle. As mentioned in the previous question, NFTs are helping to solve multiple problems related to provenance, counterfeiting, transacting, and liquidity. I believe the market is still establishing. The majority of people did learn about NFTs through digital art and collectibles. However, we're starting to shift to the next stage where SMEs and large companies start exploring this technology for completely different use cases.

As you know, I also started the NFT ticketing project Flashback.one not that long ago. We aim to change the ticketing industry by stopping fakes, allowing artists to earn royalties, and allowing their fans to collect memorable tickets the same way they used to do with paper tickets.

I would say NFTs are the future standards for royalty agreements and certain contracts that will be widely used by businesses and individuals in ticketing, the entertainment industry, medicine, supply chain, education, and other industries.

Can NFTs be used as an investment?

When most people think of NFTs, they think about all the JPEGs and GIFs being sold for a fortune. However, as I already briefly mentioned NFT is a data unit that can have investment value based on the underlying asset (if it has one). At the same time, it might only have a technological value if we, for example, talk about using NFTs within the supply chain for traceability of certain goods or shipments.

Now, if we talk about NFTs from the digital art side, I would just ask another question. Is traditional art an investment? Some people will say "yes", some people will say "no", and others will say "it depends". Investment in certain assets always has a subjective appraisal. People will be willing to pay millions of dollars for Van Gogh's artworks, but they wouldn't normally pay more than $500 to a street artist for an exquisite Van Gogh's replica.

The digital art market is only establishing and experiencing massive speculations. Speculations are not considered investments even if we are talking about traditional markets. In general, I would say that yes, NFTs in certain cases can be used as an investment, not necessarily talking about digital art, it can be real estate, for example.

How do you ensure that a physical asset and the associated NFT remain connected?

That's a good one! In some cases, there's no actual way to establish a connection between a physical asset and an NFT.

Let me give an example. Imagine you have a digital art NFT pegged to the hard asset that is currently placed in the vault. The reason for you to have an NFT is to increase the liquidity of the hard asset. A new owner wouldn’t need to collect it from the vault, deal with all the shipments and paperwork. They can simply resell it in a few days or even hours.

Now, let's imagine this NFT was resold multiple times and changed several owners. This also means that the location of the physical asset was exposed to many people and can be stolen and replaced with a higher probability. Every time there's a purchase deal happening in the traditional art market, every piece is being carefully reassessed by professionals to prove its authenticity. So now, how can you get a certainty that there's an actual hard asset in the vault that is supposedly connected to your NFT, and how do you know if it's real?

One of my friends, a photographer, asked an interesting question. He wanted to mint NFTs that are connected to his physical artworks and he didn't want a new owner to sell the physical works separately later. He was wondering if there's a way to stop it. Theoretically, you could add extra clauses to smart contracts to prevent such things from happening, but practically they can still go ahead and sell those artworks. It would be very hard to find out and prove it.

I hope that gives an idea that a physical asset can be associated with an NFT, however not always be connected with it.

Minting NFTs can be expensive, how can small digital artists make NFTs more of an option for themselves?

There are multiple Blockchains. For example, such major chains as Polygon, Avalanche, and Algorand all have very low (close to 0) gas fees. I would recommend doing more research on the platform that fits their needs and supporting the blockchain that can make this process more accessible for them.

Interviewed by Jack Morton, FAS | Fintech Advisory Services